Yields hit lows on renewed Russia, Ukraine conflict

US 10-YR
US 30-YR

U.S. Treasurys extended gains on Friday on fresh geopolitical tensions surrounding Russia and Ukraine, with the yields on benchmark 10-year notes and 30-year bonds hitting their lowest levels in over a year.

Benchmark 10-year notes rose 18/32 in price to yield 2.34 percent after hitting a session low of 2.315 percent, its lowest level since June 2013. Meanwhile 30-year bonds were last up 1-12/32, with the yield at 3.13 percent.

The yield on the 30-year bond earlier hit a session low of 3.106 percent, its lowest since May 2013.

"Risk has evaporated from the markets after the Ukraine headlines,'' said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "We have seen investors use the yen and Swiss franc as safe harbors.''

Ukraine's President Petro Poroshenko earlier said artillery destroyed a "significant'' part of a Russian armoured column that crossed into Ukraine during the night.

Russian defense officials denied any incursion into Ukraine and said no vehicles we destroyed.

However, Russia accused Ukraine of attempting to disrupt a Russian humanitarian aid mission to eastern Ukraine and called for a ceasefire in the region to allow for the deliveries.

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"Even if the issues today are resolved and there isn't a shooting war, that ongoing tension between the Ukraine and Russia puts an underlying bid into the Treasury market,'' said Lou Brien, market strategist at DRW Trading in Chicago.

While the news about Ukraine drove much of the plunge in Treasurys yields, they had started to fall earlier on weak U.S. economic data, including cooling factory activity in New York state and a dip in consumer sentiment.

The Federal Reserve Board reported industrial output grew 0.4 percent last month, above the 0.3 percent increase forecast by analysts polled by Reuters.

Manufacturing production jumped 1.0 percent in July, much stronger than the 0.4 percent rise projected by analysts.

Analysts said they would be closely watching next week's release of minutes from the Federal Reserve's July policy meeting on Aug. 20 and comments from a global central banking summit in Jackson Hole, Wyoming later in the week.

One strategist said he was eyeing the release of the minutes of the Bank of England's August policy meeting as well as the Fed's minutes.

"Whatever they say could be a wild card for U.S. rates, especially given the heightened expectations for dovishness,'' said George Goncalves, head of rates strategy for Nomura Securities in New York.

Investors have been watching closely for signs of when the Fed will hike interest rates from rock-bottom levels, and fears of such a hike hurting bond prices have affected price movements in recent weeks.

—By Reuters